Carving a niche in the rubble: A British diplomat is helping UK firms find openings in eastern Germany. John Eisenhammer reports
Friday 07 August 1992
Instead of spending a fourth year as deputy head of the economics section at the embassy in Bonn, he persuaded the Foreign Office to let him to go to the Economics Ministry of the state of Saxony, where he assists British firms seeking to invest in this part of eastern Germany.
Last January, he drove over from Bonn with a fridge, pots and pans for the bedsit, and a 'decent' telephone and personal computer for the office. Six months later an enthusiastic Saxon ministry, strong British interest and a meltdown in the answering machine combine to suggest that this venture, the only one of its kind, is worthwhile.
'There are still a great many negative impressions in Britain about the difficulties of getting into eastern Germany,' Mr Barnett said. 'I am trying to show that the problems can be overcome, by being on the spot, putting British businessmen in touch with the decision-makers here, and helping them, from the inside, through the local administration.'
Taking refuge in diplomatic caution, he conceded that some British firms did have an 'uphill struggle' in concluding successful acquisitions from the Treuhand privatisation agency against western German competition. But that situation is improving.
'We are increasingly seeing the development of a normal market, and the emphasis is switching away from the Treuhand,' Mr Barnett said. 'Many eastern German firms privatised a year or so ago are finding the going tougher than expected, and need more resources. There are plenty of opportunities for partnerships or acquisitions.'
Striding down a sun-whipped pavement towards another appointment in Dresden's city centre, tieless, his shirt hanging way out of his trousers, Mr Barnett looks a long way from the diplomatic decorum of Bonn. But then conformity is not much in demand out here. 'It's a jackets-off approach,' he said. 'All people want to know is what you have actually got done.' One such result should come later this month when a joint venture by two British firms, called Eurospan, moves into an empty factory in Saxony it is buying from the Treuhand.
With a strong product in the niche industrial-flooring market, Eurospan was looking for a production site in Germany. Through the ministry, Mr Barnett found an empty factory right next to a manufacturer of chipboard, the main base material Eurospan uses. A hundred and twenty badly needed jobs will be created.
'Too many potential British investors are discouraged by the idea that disputed property claims in eastern Germany make doing business impossible,' Mr Barnett said. 'My experience is that, once a project has been identified, it is possible in the overwhelming majority of cases to obtain clear title to land. You just have to be persistent, and work within the system.'
But the sort of productive industrial investment being made by Eurospan remains very much the exception. 'A firm has to have a strong market position to make it worthwhile here. The immediate subsidies do not go that far when set against the fact that, with the automatic ratcheting of eastern German wages up to western levels, in a few years time a business here will be producing in the most expensive part of Europe. Just over an hour away, across the Czech border, wage costs are one twentieth of German ones.'
Ninety per cent of the British firms Mr Barnett deals with are in the service and infrastructure sectors. It is here that Britain 'has a real edge', in the diplomat's view. Virtually the entire public infrastructure in eastern Germany needs to be renewed - roads and rail, power stations, water treatment plants, electricity and gas supplies. On top of this there is an immense environmental clean-up operation to be done. It appears an impossible task when set against available public funds. For example, the state of Saxony estimates it needs to spend DM40bn ( pounds 14.5bn) over the next 10 years in the water sector. The state Environment Ministry's subsidies amount to DM500m a year.
'The successful firms will be those who can use a modest amount of public pump-priming to generate private financing,' Mr Barnett said. 'And that is where British companies have unrivalled experience. There are plenty of people around in Europe with the technical know-how and project planning expertise, but few have the UK's background in successfully mixing public and private finance, for example in the clean-up and regeneration of old industrial areas.'
He recently took a group of senior officials from Saxony's devastated lignite mining area to visit the Welsh valleys, putting them in touch with 17 British firms, all of which are now planning to go and see what can be done in eastern Germany.
'Attitude is one of the most important things here,' Mr Barnett said. 'This is not a place for quick money. People need to show that they are committed, getting a local partner, building up a reputation for reliability.' The psychology goes even further than that, he suggests, and could prove of advantage to foreign investors.
There is already strong resentment inside the ministries and local councils across eastern Germany of what are seen as the arrogant, 'colonialist' attitudes of many western German businessmen. 'Investors need to be sensitive to the fact that people here are in a period of huge adjustment, not just structural, but personal, coping with an entirely new system. What is most in demand is just a cheerful sense of humour. Make them feel you are an easy, comfortable partner. You cannot beat that.'
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